Club Intrawest v. The Queen

Club Intrawest v. The Queen
Court (s) Database
Tax Court of Canada Judgments
Date
2016-06-09
Neutral citation
2016 TCC 149
File numbers
2012-3401(GST)G
Judges and Taxing Officers
Steven K. D'Arcy
Subjects
Part IX of the Excise Tax Act (GST)
Decision Content
Docket: 2012-3401(GST)G
BETWEEN:
CLUB INTRAWEST,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
Appeal heard on November 24, 25 and 26, 2014 at Vancouver, British Columbia and on January 27, 2015 at Ottawa, Ontario
Before: The Honourable Justice Steven K. D'Arcy
Appearances:
Counsel for the Appellant:
Chia-yi Chua
Wendy A. Brousseau
John C. Yuan
Counsel for the Respondent:
Lynn M. Burch
Shannon Currie
JUDGMENT
In accordance with the attached reasons for judgment:
The appeal from the assessments with regard to monthly reporting periods ending on October 31 for each year from 2002 to 2007, made under the Excise Tax Act, notices of which are dated August 19, 2010 for the October 2007 monthly reporting period and August 20, 2010 for the October monthly reporting period for each of the years 2002 to 2006, is dismissed.
The appeal from the assessment with regard to the monthly reporting period ending on October 31, 2008 is quashed.
The parties have thirty days from the date of this judgment to make representations with respect to the amount of costs that the Court should award to the Respondent. If no submissions are received, costs shall be awarded to the Respondent as set out in the Tariff.
Signed at Ottawa, Canada, this 9th day of June 2016.
“S. D’Arcy”
D'Arcy J.
TABLE OF CONTENTS
I. Introduction 1
II. Witnesses 3
III. Summary of Facts 4
Transfer of Vacation Homes to the Appellant 6
The Canadian Developer’s and U.S. Developer’s involvement with the sale of the Intrawest Program 9
Sale of Resort Points 10
The Annual Resort Fee 11
Other supplies of the Vacation Homes 15
IV. First Issue: Whether the Appellant acquired numerous goods and services as agent for the Members of the Appellant 16
The Law 17
Tax levied under Division II of the GST Act 17
Principal/Agent Relationship 18
Authority of the Appellant to affect a Member of the Appellant’s legal position 20
Transfer of Canadian Vacation Homes from the Canadian Developer to the Appellant 22
Transfer of U.S./Mexico Vacation Homes to the Appellant 26
Did either the Canadian Developer or the U.S. Developer Transfer beneficial interests in the Vacation Homes to the Resort Point Purchasers? 26
Did the Appellant Transfer beneficial interests in the Vacation Homes directly to the Resort Point Purchasers? 28
Conclusion 31
Consent of both principal and agent 32
The items that comprise the Annual Resort Fee 38
Wording in the By-laws and Master Declaration 38
Ability of the Canadian Developer to avoid paying the Annual Resort Fee 39
Control 39
Conclusion 41
V. Second Issue: Was the supply made in Canada? 42
Legislative inconsistency in section 142 42
Supply of a service or of intangible personal property? 48
Did the Appellant make a single supply or multiple supplies in consideration of the Annual Resort Fee? 53
Taxation of the supply of a service that relates to real property in Canada and real property outside of Canada 55
Is the supply before the Court deemed to be made in Canada? 66
VI. Third Issue: Whether the Minister followed the provisions of the GST Act when calculating the Appellant’s net tax 67
VII. Conclusion 72
Citation: 2016 TCC 149
Date: 20160609
Docket: 2012-3401(GST)G
BETWEEN:
CLUB INTRAWEST,
Appellant,
and
HER MAJESTY THE QUEEN,
Respondent.
REASONS FOR JUDGMENT
D'Arcy J.
I. Introduction
[1] The Minister has assessed the Appellant in respect of its monthly reporting period ending on October 31 for each year from 2002 to 2007. The appellant also filed an appeal for its monthly reporting period ending on October 31, 2008. I quashed that appeal at the commencement of the hearing with the consent of the Appellant.
[2] As stated in the Amended Partial Agreed Statement of Facts and Issues (the PASF), the Appellant “was created to facilitate the administration and operation of resort accommodations in connection with a vacation accommodation ownership plan. . .” (the Intrawest Program). [1]
[3] The issues in this appeal arise from transactions between the following parties:
- The Appellant.
- Intrawest Resort Ownership Corporation and its successor corporations, Intrawest Corporation and Intrawest ULC (individually and collectively referred to as the Canadian Developer).
- Intrawest Resort Ownership U.S. Corporation and Resort Ventures L.P (jointly referred to as the U.S. Developer).
- Certain third parties situated in Canada who entered into an agreement with the Canadian Developer that allowed them to participate in the Intrawest Program (Canadian Resort Point Purchasers).
- Certain third parties situated in the United States who entered into an agreement with the U.S. Developer that allowed them to participate in the Intrawest Program (the American Resort Point Purchasers).
[4] The appeal relates to the following issues that arise in respect of the Appellant’s participation in the Intrawest Program:
- Whether the Appellant acquired numerous goods and services as agent for the Canadian Resort Point Purchasers, the American Resort Point Purchasers, the Canadian Developer, and the U.S. Developer (collectively referred to as the Members of the Appellant).
- If the Appellant did not acquire the numerous goods and services as agent for the Members of the Appellant,
o What was the nature of the supply made by the Appellant to the Members of the Appellant? Specifically, was it a supply of intangible personal property or of a service?
o How do the place-of-supply rules contained in section 142 of Part IX of the Excise Tax Act (the GST Act) apply to a supply of intangible personal property or a service that relates to both real property situated in Canada and real property situated outside of Canada?
- Whether the Minister followed the provisions of the GST Act when calculating the Appellant’s net tax.
II. Witnesses
[5] The Appellant called two witnesses, Mr. Robert Keith Thompson and Ms. Sandra Ruff.
[6] Mr. Thompson is a retired lawyer. He informed the Court that, starting in 1993, he acted for Intrawest Corporation (the parent company of the Canadian Developer) and the Canadian Developer. Mr. Thompson informed the Court that his clients, Intrawest Corporation and the Canadian Developer, were waiving privilege with respect to discussions he had had with them relating to the establishment of the Appellant and the drafting of documents regarding the establishment of the Appellant. [2]
[7] Most of Mr. Thompson’s testimony involved the identification of certain documents that he drafted on behalf of the Canadian Developer. The PASF discusses the majority of these documents.
[8] Mr. Thompson testified that he did not act for the Appellant. In addition, he was not involved in the transactions between the Canadian Developer and Canadian Resort Point Purchasers pursuant to which the Canadian Resort Point Purchasers purchased their interests in the Intrawest Program. [3]
[9] Ms. Ruff is an accountant who works for a division of the Canadian Developer. Specifically she is the Vice-President of Finance of the Intrawest Resort Club Group division of the Canadian Developer. The majority of her testimony related to the calculation of an annual fee that the Appellant bills to the Members of the Appellant (the Annual Resort Fee).
[10] I found both witnesses to be credible.
[11] The Respondent called three witnesses: Mr. Jaya Abraham, Ms. Brenda Ewing and Mr. Dennis Lum.
[12] Mr. Abraham and Ms. Ewing are Canadian Resort Point Purchasers. In 2008, subsequent to the assessed periods, Ms. Ewing was a sales representative for the Canadian Developer.
[13] Mr. Lum is a large-business auditor and has worked for the CRA for 25 years.
[14] I found all of the Respondent’s witnesses to be credible.
III. Summary of Facts
[15] The Appellant is a non-profit, non-stock corporation that was established on November 9, 1993 under the laws of the state of Delaware in the U.S.A. The Appellant is a GST registrant and its mailing and business address is 326-375 Water Street, Vancouver, British Columbia. [4]
[16] When assessing the Appellant, the Minister assumed that the Appellant was at all material times a resident of Canada. The Appellant did not provide any evidence to rebut this assumption.
[17] Paragraph 14 of the PASF notes that the following documents govern the Intrawest Program:
- Exhibit A-1, Table 1: The table contains an agreement entitled, FOURTEENTH AMENDED AND RESTATED Master Declaration for Club Intrawest entered into by the Appellant and the Canadian Developer (the Master Declaration).
- Exhibit A-1, Table 13: The table contains two documents: the Certificate of Incorporation for the Appellant with amendments (the Incorporation Documents) and the by-laws of the Appellant (the By-laws).
- “The agreements governing the trust arrangements described. . .in paragraph 19” of the PASF. Paragraph 19 states the following:
When the developer [the Canadian Developer] transferred a vacation home in Canada to the Club [the Appellant], legal title to the vacation home was transferred to a trust company created under Canadian law, as trustee for the Club [the Appellant]. When the U.S. developer transferred a vacation home in the United States or Mexico to the Club [the Appellant], legal title to the vacation home was transferred to a trust company created under U.S. law, as trustee for the Club [the Appellant].
I will refer to the trust agreement involving the Canadian Developer and the Appellant as the Canadian Bare Trust Agreement and the agreement involving the U.S. Developer and the Appellant as the U.S. Bare Trust Agreement.
- Exhibit A-1, Table 6: “the guidelines setting out the rules applicable to members in connection with the Intrawest program.” (the Membership Guidelines)
- Exhibit A-1, Table 8: The document entitled Purchase and Membership Agreement which agreement was entered into by the Canadian Developer and a Canadian Resort Point Purchaser (the Canadian Purchase and Membership Agreement)
- Exhibit A-3: A document entitled Membership Certificate
[18] As noted in paragraph 13 of the PASF, the parties are satisfied that the documents at Exhibits A-1 and A-2 are materially representative of these documents for the period between 2002 and 2007. I assume that the Membership Certificate, Exhibit A-3, is also materially representative of that document for the period between 2002 and 2007.
[19] The Canadian Developer established the Appellant and created the Intrawest Program in 1993. During the relevant period, the program involved vacation homes located in resorts in Canada (the Canadian Vacation Homes), the United States and Mexico [5] (the U.S./Mexico Vacation Homes).
[20] It is my understanding that the Canadian Vacation Homes and the U.S./Mexico Vacation Homes (which I will refer to together as the Vacation Homes) are studio, one, two, and three bedroom condominium units in the various resorts. [6]
[21] The Canadian Developer either built or purchased the Canadian Vacation Homes. [7] It appears that the U.S. Developer either built or purchased the U.S./Mexico Vacation Homes. [8] As I will discuss, the Canadian Developer and the U.S. Developer transferred their respective interests in the Canadian Vacation Homes and the U.S./Mexico Vacation Homes to the Appellant.
[22] The Appellant retained the Canadian Developer to manage and operate the Canadian Vacation Homes and the U.S./Mexico Vacation Homes. [9]
Transfer of Vacation Homes to the Appellant
[23] Each of the Canadian Developer and the U.S. Developer transferred individual Vacation Homes to the Appellant. The Appellant paid for the Vacation Homes by transferring the occupancy rights to the Vacation Homes, in perpetuity, to the Canadian Developer and the U.S. Developer respectively. [10] I received very little detailed evidence with respect to these key transactions.
[24] The PASF notes the following:
7. When the developer(s) [the Canadian Developer] transfer a vacation home, either built or acquired, to the Club [the Appellant], it is transferred in exchange for the number of resort points required for the right to occupy and use the vacation home for an entire year. [11]
. . .
12. The point values for the right to occupy and use the vacation home at a particular resort are determined before the developer(s) [the Canadian Developer] transfer the vacation home to the Club [the Appellant].
[25] I have concluded from paragraphs 7 and 12 of the PASF, and after reading section 2.1(a) of Exhibit A-1, that the Canadian Developer transferred Vacation Homes to the Appellant in consideration of the occupancy rights, in perpetuity, to the Vacation Home. The occupancy rights are evidenced by a point system. According to paragraph 11 of the PASF, the Canadian Developer determines the actual number of points that represent the value of occupancy of a home for each day in a year (the Resort Points).
[26] While paragraphs 7 and 12 of the PASF refer only to the Canadian Developer, I assume that the U.S. Developer received the same consideration when it transferred U.S./Mexico Vacation Homes to the Appellant.
[27] The Appellant did not provide the Court with any of the actual transfer agreements used by the Canadian Developer to transfer Canadian Vacation Homes to the Appellant (the Canadian Vacation Home Transfer Agreement), or used by the U.S. Developer to transfer U.S./Mexico Vacation Homes to the Appellant (the American Vacation Home Transfer Agreement). The Appellant’s counsel argued that the Master Declaration effected the transfers. I do not agree. While the Master Declaration permits the transfers to take place, it is not an agreement that actually transfers the Vacation Homes to the Appellant. The Master Declaration does not contain basic clauses that are required in order to effect a transfer of a specific Vacation Home, such as a consideration clause, a date-of-transfer clause and a clause that specifies the interests that are being transferred. Mr. Thompson confirmed to the Court that the transfers were effected by documents that are not before the Court. [12]
[28] In addition, the Appellant did not call as a witness an employee, officer, or director of the Canadian Developer, the U.S. Developer or the Appellant who had knowledge of the terms of these agreements. In fact, the Appellant did not call any employees, officers or directors of the Appellant to testify before the Court.
[29] As a result, as I will discuss, it is not clear to the Court what beneficial interests in the Vacation Homes, or responsibilities with respect to the Vacation Homes, were retained by the Appellant under the two transfer agreements.
[30] As discussed previously, when the Canadian Developer transferred a Canadian Vacation Home to the Appellant, legal title was transferred to a trustee pursuant to the Canadian Bare Trust Agreement. When the U.S. Developer transferred a U.S./Mexico Vacation Home to the Appellant, legal title was transferred to a trustee pursuant to the U.S. Bare Trust Agreement.
[31] The Appellant provided the Court with a copy of the Canadian Bare Trust Agreement between the Canadian Bare Trustee, the Canadian Developer and the Appellant. Section 2.1 of the trust indenture states the following:
2.1 Appointment: The Club [the Appellant] appoints the Trustee as its bare trustee to hold legal title to the Resort Accommodation in trust for and on behalf of the Club [the Appellant] in accordance with the terms of this Agreement. The Trustee accepts the appointment and declares that:
(a) It will hold legal title to the Resort Accommodation in trust for the Club [the Appellant] in trust as bare Trustee for and on behalf of the Club [the Appellant]; and
(b) It will hold no beneficial interest in the Resort Accommodation and that all the equitable and beneficial interest in the Resort Accommodation will be vested solely and exclusively in the Club [the Appellant] for the benefit of the Club [the Appellant] and its Members. [13]
[32] The Court was not provided with a copy of the U.S. Bare Trust Agreement. It appears, from the evidence before me, that the U.S. Bare Trustee held the legal title in the Vacation Homes in trust as bare trustee for and on behalf of the Appellant. [14]
The Canadian Developer’s and U.S. Developer’s involvement with the sale of the Intrawest Program
[33] The Canadian Developer markets and sells the Intrawest Program in Canada. [15] The U.S. Developer markets and sells the Intrawest Program in the United States. [16]
[34] The PASF provides the following description of the Canadian Developer’s involvement in the program:
- The Canadian Developer assigns “a point value” (Resort Points) to the right to occupy one day in each [Vacation Home], with possible variations in assigned point value for the particular [Vacation Home], depending on which of five Intrawest program seasons – holiday season, peak season, activity season, relax season and opportunity season-the particular day falls within. [17]
- The Canadian Developer then sells, in Canada, Resort Points to Canadian Resort Point Purchasers.
[35] The PASF states that the Canadian Developer is a member of the Appellant. [18] It is not clear to the Court when or how the Canadian Developer acquired this membership.
[36] I did not receive any evidence with respect to the U.S. Developer’s involvement in the assignment of point values to the U.S./Mexico Vacation Homes.
[37] The only reference in the PASF to the U.S. Developer’s involvement in the Intrawest Program is the statement in paragraph 5 that the U.S. Developer markets and sells the Intrawest Program in the United States.
[38] The PASF does not state whether the U.S. Developer is a member of the Appellant. However, section 1.34 of the Master Declaration states that “‘Member’ means Resort Point Members and Advantage Members (collectively the Resort Point Purchasers), [19] together with the Declarant, with respect to the Declarant’s Resort Points and the Declarant’s Advantage Interests.” Pursuant to sections 1.4 and 7.3 of the Master Declaration, Advantage Members are, generally speaking, Resort Point Purchasers who have special occupancy rights. [20] Section 1.18 of the Master Declaration defines Declarant as including the Canadian Developer and its appointees. Section 1.6 of the Master Declaration states that ‘Appointee’ means Intrawest Resort Ownership U.S. Corporation, Resort Ventures, L.P [the U.S. Developer]. In summary, pursuant to the Master Declaration, the U.S. Developer is a member of the Appellant.
Sale of Resort Points
[39] The Canadian Developer and the Canadian Resort Point Purchasers entered into the Canadian Purchase and Membership Agreement. Section 2 of the agreement provides that the Canadian Resort Point Purchaser agrees to purchase, and the Canadian Developer agrees to sell, a specific number of Resort Points. [21] For the purposes of the Canadian Purchase and Membership Agreement, Resort Points are defined as “the currency of use at the Club [the Appellant] through which Resort Point Members reserve occupancy of Resort Accommodation in accordance with the Club Instruments.” [22]
[40] The Canadian Purchase and Membership Agreement also provides that “on the purchase of the Resort Points, the Purchaser [the Canadian Resort Point Purchaser] shall be admitted as a Member of the Club [the Appellant] at no additional cost.”
[41] The parties did not file with the Court the agreements that the U.S. Developer entered into with the American Resort Point Purchasers when the U.S. Developer sold Resort Points to the American Resort Point Purchasers. I assume that the American Resort Point Purchasers, when purchasing Resort Points from the U.S. Developer, acquired a membership in the Appellant.
[42] The Canadian Resort Point Purchasers and the American Resort Point Purchasers (referred to collectively as the Resort Point Purchasers), may occupy the Vacation Homes “during a particular year by applying their resort points available to use that year towards a vacation home at a resort based on the assigned point values for each day and size of vacation home chosen”. [23]
[43] The taxation of the sale of Resort Points is not before the Court. The issue before the Court is the taxation of the Annual Resort Fee paid by the Members of the Appellant.
[44] Paragraph 21 of the PASF states the following:
21. The principal rights that a member has in connection with the Intrawest program are the following:
(a) the right to use resort points held by the member to reserve the use of the vacation homes in accordance with the Guidelines as established by the developer [the Canadian Developer];
(b) the right to vote at annual general meetings of the Club [the Appellant], including the election of directors of the Club [the Appellant] and on any other Club matters that require member approval pursuant to the by-laws; and
(c) in the event of wind-up and dissolution of the Club [the Appellant], the right to receive a distribution of the net proceeds from the liquidation of the assets of the Club [the Appellant] that is in proportion to the ratio of the member’s resort points to all resort points.
The Annual Resort Fee
[45] Paragraph 22 of the PASF states: “Each member [the Canadian Developer, the U.S. Developer, the Canadian Resort Point Purchasers and the American Resort Point Purchasers] is liable to pay an annual assessment to the Club [the Appellant] to meet ‘Membership Costs’ as defined in the master declaration.”
[46] Section 1.37 of the Master Declaration states: “‘Membership Costs’ means and includes all costs incurred by the Club [the Appellant] for and on behalf of the Members [the Members of the Appellant] as provided in Section 10.3 hereof.” [24]
[47] Section 10.2 of the Master Declaration states: “Each Member, including the Declarant [the Canadian Developer] and each Appointee [the U.S. Developer] and a Lender of Record acquiring a Membership as a result of enforcement of its security interest, shall be required to pay a Resort Fee for each Membership owned.” Section 1.50 of the Master Declaration states: “‘Resort Fees’ means the annual assessment levied by the Board upon all Members [the Members of the Appellant] for their proportionate share of the annual Membership Costs.” [25]
[48] As a result, the Canadian Resort Point Purchasers, the American Resort Point Purchasers, the Canadian Developer and the U.S. Developer satisfy the obligation to pay the annual Membership Costs when each pays the “Resort Fees” [i.e. the Annual Resort Fee].
[49] Paragraphs 25 to 38 of the PASF provide a general description of the calculation of the Annual Resort Fee. These paragraphs are attached hereto as Appendix A. The facts contained in these paragraphs may be summarized as follows:
- The Annual Resort Fee payable by a Member of the Appellant is a dollar amount per Resort Point for the particular calendar year multiplied by the number of Resort Points owned by the particular person. [26]
- The Appellant, through its board of directors, establishes the per-Resort-Point rate for a calendar year by dividing the budgeted costs for the particular year by the total amount of Resort Points issued by the Appellant. The per-Resort-Point rate is subject to the limitation in the Master Declaration with respect to the maximum rate per Resort Point that the Appellant is entitled to assess for a particular year. [27]
- Section 10.5 of the Master Declaration states that the Annual Resort Fee may not exceed a certain amount and provides rules for determining the maximum amount. [28]
- Paragraphs 36 and 37 of the PASF deal with Members of the Appellant who have not paid the Annual Resort Fee by its due date. Those paragraphs state the following:
36. All resort fees must be current in order for a member to make reservations using their resort points, to bank, borrow or transfer resort points, to use vacation homes, or maintain any other member rights or privileges.
37. Members who fail to pay their resort fees by the due date are in default. In the event of default, the Club [the Appellant] may exercise its right to forfeit the defaulting member’s membership.
- Paragraph 38 of the PASF notes that the payment of the Annual Resort Fee does not entitle members to any additional rights or privileges.
[50] Ms. Ruff provided additional evidence with respect to the calculation and payment of the Annual Resort Fee.
[51] She testified that the budgeted costs are determined in September of each year being based upon the estimated costs for the next year. For example, the budgeted costs used to calculate the Annual Resort Fee for the 2003 calendar year were determined by the end of September 2002. [29]
[52] The Appellant uses the budgeted costs to determine a cost per outstanding Resort Point, that is, a cost for Resort Points held by the Canadian Developer, the U.S. Developer, the Canadian Resort Point Purchasers and the American Resort Point Purchasers. For example, the Appellant determined in September 2002 that the cost per-Resort-Point for the 2003 calendar year was $5.25. [30]
[53] The Appellant then identified the “owners of record” of the Resort Points as at September 30 of a particular year. In October of each year, the Appellant billed each Resort Point Purchaser an amount for the Annual Resort Fee. For example, if a Resort Point Purchaser held 200 Resort Points as of September 30, 2002, then the Appellant billed that Resort Point Purchaser $1,050 in October 2002 (200 x $5.25) as the Annual Resort Fee for 2003. [31]
[54] The Canadian Developer is not billed the total Annual Resort Fee in October of each year. Instead, the Appellant bills the Canadian Developer monthly for its portion of the Annual Resort Fee. [32] While I did not hear specific evidence with respect to whether the U.S. Developer is billed on an annual or a monthly basis, I have concluded, after reviewing Ms. Ruff’s calculations, that it was billed on a monthly basis.
[55] She also testified that the Canadian Developer may pay all or a portion of the Annual Resort Fee on behalf of a Canadian Resort Point Purchaser as an incentive for that person to enter into the Canadian Purchase and Membership Agreement or as an incentive for a Resort Point Purchaser to purchase additional Resort Points; the Canadian Developer may also do so when a Canadian Resort Point Purchaser refers a person to the Canadian Developer and that person purchases Resort Points. [33]
[56] Ms. Ruff testified as well that if the actual expenses exceed the budgeted costs then the excess was added to the budgeted amount in the subsequent year. For example, if the actual expenses incurred in 2003 exceeded the budgeted amounts, then the excess would have been added to the budget for 2004. If the actual expenses are less than the budgeted amounts, then the subsequent year’s budget is reduced by the amount of the excess. [34]
Other supplies of the Vacation Homes
[57] Paragraph 73 of the PASF states the following:
From the time the Intrawest Program was established in 1993, the developer [the Canadian Developer] has operated various rental programs outside of the Intrawest Program under which the developer [the Canadian Developer] has generated revenues from renting out vacation homes (using occupancy rights associated with resort points owned by the developer [the Canadian Developer])
[58] One of these programs was referred to as the Passport Program. Paragraphs 74 and 76 of the PASF provide the following description of the program:
74. The Passport Membership Program (the “Passport Program”) is a Vacation Home rental program that the developer [the Canadian Developer] created in 2006 to support the developer’s sales and marketing of resort points.
. . .
76. Under the Passport Program, a purchaser buys a number of points that can be redeemed with the developer [the Canadian Developer] (rather than the Club [the Appellant]) to occupy vacation homes during a 12-month period. . .
[59] The PASF states that persons who participated in the Passport Program did not pay any resort fees to either the Canadian Developer or the Appellant. [35]
[60] The Appellant’s financial statements indicate that the Appellant earned revenue in respect of “getaway fees”. [36] I did not hear any oral evidence with respect to these fees, nor are they discussed in the PASF. It appears that these fees are earned when Vacation Homes are rented to Resort Point Purchasers for cash as opposed to Resort Points. The Master Declaration and the Membership Guidelines provide that Vacation Homes that are not reserved by Resort Point Purchasers fourteen days prior to an occupancy date may be rented on a cash basis to Resort Point Purchasers. [37] It is not clear to the Court whether all, or only a portion, of the “getaway fees” are paid to the Appellant. As discussed in the next paragraph, revenue earned from the rental of Vacation Homes to the public may be paid to either the Canadian Developer or the Appellant.
[61] The Appellant’s financial statements refer to “other revenue”. I did not receive any evidence with respect to this revenue. I assume that the “other revenue” is, in part, the revenue realized from the rental of Vacation Homes to the general public pursuant to section 5.11 of the Master Declaration, which states, in part, the following:
If a Member [a Member of the Appellant] does not reserve occupancy at Resort Accommodation [a Vacation Home] fourteen (14) days prior to an occupancy date, then the Manager [the Canadian Developer [38] ] may offer the Resort Accommodation [a Vacation Home] for rent to the general public and the rental proceeds received after deduction of the Manager’s fee shall be paid at the direction of the Declarant [the Canadian Developer [39] ] either to the Club [the Appellant] or to the Declarant . . .
[62] It is not clear to the Court what portion of these fees was paid to the Canadian Developer and what portion was paid to the Appellant.
[63] There is no evidence before me that the persons who rented Vacation Homes under either of these two programs paid the Annual Resort Fee.
IV. First Issue: Whether the Appellant acquired numerous goods and services as agent for the Members of the Appellant
[64] It is the Appellant’s position that the Annual Resort Fee is not subject to GST since it is a reimbursement of expenses that the Appellant incurred as agent for each of the Canadian Developer, the U.S. Developer, the Canadian Resort Point Purchasers and the American Resort Point Purchasers.
[65] It is the Respondent’s position that the Annual Resort Fee is consideration for a taxable supply of intangible personal property. Specifically, the Annual Resort Fee is part of the ongoing consideration the Canadian Developer, the U.S. Developer, the Canadian Resort Point Purchasers and the American Resort Point Purchasers must pay in order to maintain their membership in the Appellant.
The Law
Tax levied under Division II of the GST Act
[66] This appeal is concerned with the GST levied under subsections 165(1) and (2) of Division II of the GST Act. Those subsections read as follows:
(1) Subject to this Part, every recipient of a taxable supply made in Canada shall pay to Her Majesty in right of Canada tax in respect of the supply calculated at the rate of 5% on the value of the consideration for the supply.
(2) Subject to this Part, every recipient of a taxable supply made in a participating province shall pay to Her Majesty in right of Canada, in addition to the tax imposed by subsection (1), tax in respect of the supply calculated at the tax rate for that province on the value of the consideration for the supply.
[67] The 5% rate currently imposed under subsection 165(1) was 7% prior to July 2006 and 6% from July 2006 to the end of 2007.
[68] The effect of subsections (1) and (2) is to levy a single federal value-added tax at two rates: the 5% rate for supplies made in so-called non-participating provinces [40] and a 13%, 14% or 15% rate for supplies made in participating provinces.
[69] The answers to the following questions determine the amount, if any, of Division II tax payable under subsections 165(1) and (2):
- Did the supplier make a taxable supply?
- What was the amount of the consideration for the supply?
- Was the taxable supply made in Canada? [41]
- Was the taxable supply made in a participating province? [42]
[70] A taxable supply is defined as a supply made in the course of a commercial activity. [43] The GST Act defines a supply as the provision of property or a service in any manner, including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition. [44]
[71] If I find that the Members of the Appellant paid the Annual Resort Fee to the Appellant as a reimbursement of expenses that the Appellant incurred as agent for the Canadian Developer, the U.S. Developer and the Resort Point Purchasers, then the Annual Resort Fee is not subject to GST. Where an agent is acting for a principal when acquiring property or a service from a third party supplier, the agent is not making a supply of the property or service to its principal, but is merely acting as a conduit.
Principal/Agent Relationship
[72] The agency argument raised by the Appellant is in respect of costs incurred in Canada, the United States and Mexico. The costs were incurred by the Appellant (a corporation incorporated in the United States), the Canadian Developer or the U.S. Developer. Further, the costs relate to Vacation Homes situated in Canada, the United States and Mexico. In such a situation, the Court must consider whether the agency law of the United States and Mexico applies to certain of the costs.
[73] It is possible that the law in the United States and/or Mexico relating to the creation of an agency relationship differs from the law in Canada.
[74] In Fernandez v “Mercury Bell” (The) [45] the Federal Court of Appeal held that:
It is well known that in countries governed by the English law, a court is not entitled to inquire proprio motu as to the content of the foreign law on the basis of which an action brought before it should be disposed of. The court will not in principle take judicial notice of foreign law; it will not even consider foreign law as an ordinary fact (which it is not, in any event) about which it may require the parties to adduce satisfactory evidence. If the parties, willfully or inadvertently, fail to bring expert evidence of the foreign law, the court will act as if the foreign law is the same as its own law, it will apply the lex fori. [46] [Emphasis added.]
[75] In short, the consequence of a party failing to bring expert evidence to explain the operation of foreign law is that the concept of lex fori will apply. The Canadian court will act as if the foreign law is the same as its own law, unless the law is of a local or regulatory nature.
[76] The Appellant did not bring expert witnesses to explain to the Court the operation of the law of agency (or of any law) in the United States or Mexico. As a result, I will use Canadian law to make my decision on the agency issue and any other legal issue before the Court.
[77] The following definition of agency, by Gerald Fridman, has been quoted and applied in a number of decisions of Canadian courts:
Agency is the relationship that exists between two persons when one, called the agent, is considered in law to represent the other, called the principal, in such a way as to be able to affect the principal’s legal position by the making of contracts or the disposition of property.
. . .
Whether an agency relationship exists is a question of fact. If there is no evidence proving that one party intended another to act as his or her agent, there is no agency. [47]
[78] Royal Securities Corp v Montreal Trust Co [48] outlined the generally accepted three components of an agency relationship as follows:
1. The consent of both the principal and the agent;
2. Authority given to the agent by the principal allowing the former to affect the latter’s legal position;
3. The principal’s control of the agent’s actions.
Authority of the Appellant to affect a Member of the Appellant’s legal position
[79] Counsel for the Appellant stated at the commencement of her oral argument that “one of the key issues that needs to be addressed before we can get to characterization of the resort fees [the Annual Resort Fee] is the ownership of the vacation properties [the Vacation Homes].” [49] She argued that the beneficial interests in the Vacation Homes are held by the Appellant in trust for the benefit of the Members of the Appellant, namely, the Canadian Developer, the U.S. Developer, the Canadian Resort Point Purchasers and the American Resort Point Purchasers. Further, she argued that the members hold an “un-deeded, undivided co-ownership” interest in each Vacation Home. [50]
[80] I agree with the Appellant’s counsel that this is a key issue. One of the components of agency is the authority of the Appellant to affect the legal rights of the Members of the Appellant. If the Members of the Appellant are not obligated to pay the expenses required to maintain, repair, improve and operate the Vacation Homes (the Vacation Home Operating Costs), or to incur other expenses with regard to the Vacation Homes, then there are no legal rights that the Appellant can affect on behalf of the members in respect of such expenses. In such a situation, an agency relationship cannot, as a question of fact, exist.
[81] It is the Respondent’s position that the Appellant does not hold the beneficial interest in trust for the members of the Appellant.
[82] When assessing the Appellant, the Minister made the following assumptions,
- Under the Intrawest Program, the Canadian Developer builds Vacation Homes situated in Canada and transfers beneficial ownership of those properties to the Appellant in exchange for the rights to occupy the resort accommodations beneficially owned by the Appellant.
- The Appellant beneficially owns resort accommodations in British Columbia, Ontario, Quebec, California, Florida, Hawaii and Mexico.
- The Appellant acquires beneficial ownership of the real properties acquired by the Canadian Developer and the U.S. Developer in exchange for Resort Points.
- The Resort Point Purchasers do not hold fee-simple title to their interest in the Vacation Homes, but only hold points.
[83] In my view, these assumptions mean that the Minister assumed, when assessing the Appellant, that the Appellant held the beneficial interest in the Vacation Homes, subject to the occupancy rights granted to the Canadian Developer and the U.S. Developer.
[84] The onus is on the Appellant to establish, on a prima facie basis, that someone transferred beneficial interests in the Vacation Homes, and particularly the risk with respect to the homes, to the Canadian Developer, the U.S. Developer, the Canadian Resort Point Purchasers and the American Resort Point Purchasers.
[85] In Velcro Canada Inc v The Queen, [51] Associate Chief Justice Rossiter (as he then was), citing Associate Chief Justice Rip (as he then was) in Prévost Car Inc. v The Queen, [52] stated that there are four elements in considering the attribution of beneficial ownership: possession, use, risk and control. Associate Chief Rossiter stated the following: “In looking at the beneficial ownership issue one must apply the test as set out by Chief Justice Rip, and in doing so, one must look to the meaning of individual words, that is, ‘possession’, ‘use’, ‘risk’ and ‘control’. These words have ordinary meanings.” [53]
Transfer of Canadian Vacation Homes from the Canadian Developer to the Appellant
[86] The evidence before me is that the Canadian Developer was the first of the relevant persons to hold legal and beneficial ownership in any of the